Sources of Funds to U.S. Corporations

Retained Earnings Debt – bank loans, bonds, etc. Stock – common, preferred. Other

Internal vs. External Sources Private vs. Public Sources Debt vs. Equity

Announcements of New Issues Dow Jones News Service TAFT, Calif. (Dow Jones)--Berry Petroleum Co. (BRY) entered a three-year, $150 million unsecured revolving line of credit with NationsBank Corp.'s (NB) NationsBank of Texas unit. In a press release, Berry said the initial borrowing base will be $50 million, which can be redetermined periodically based on its needs, agreement with the bank and approval of its board. Initial borrowings under the agreement will bear interest at LIBOR plus 60 basis points, which at current market conditions is about 6 1/4% annually. Berry Petroleum, Taft, Calif., is an independent oil and gas production and exploration company. Business Wire DAYTON, Ohio--(BUSINESS WIRE)--Nov. 8, Amcast Industrial Corporation(NYSE - AIZ) today announced that the company has entered into a new $50 million, ten-year credit agreement with two institutional investors, Principal Mutual Life Insurance Company, Des Moines, Iowa, and Northwestern Mutual Life Insurance Company, Milwaukee, Wisconsin. The notes will carry an interest rate of 7.09% and will have an average term of eight and one half years. The proceeds of the notes will be used to retire existing bank debt, fund Amcast's capital expenditures for expansion, as well as other general corporate and business purposes.

Sources of New Funds to U.S. Corporations

Debt Financing Private - bank loans Public – corporate bonds corporations rely mainly on bonds over other public securities most widely used form of financing in recent years Other - privately placed notes

External Equity Preferred Stock least used of all long-term corporate securities Common Stock represents a small percentage of long-term financing

Regulation of the Securities Markets Securities and Exchange Commission (SEC) is in charge of regulating the organized stock exchanges Purpose of the SEC is to protect investors from fraud and manipulation Trend in recent years has been toward more legislation to avoid abuses in the market Relevant laws Securities Act of 1933 Securities Exchange Act of 1934 Glass-Steagall Act Regulation Fair Disclosure Sarbanes-Oxley Coordinated worldwide 2008 bailout and increased role of the Fed and the Treasury

How are new funds issued? Maxwell Corporation Managing investment banker Underwriting syndicate Selected dealers group Brokers Public Issues 250,000 additional shares of stock Merrill Lynch 15 investment dealers (including Merrill Lynch)

Public vs. Private Companies Public company: when shares of a company are offered to the public anyone can buy shares of the stock Private company: privately owned or held by an individual or family not available to the general public

Advantages and Disadvantages of Raising Funds Publicly Advantages of being public: greater availability of funds (easier to grow and raise money) Disadvantages of being public: information disclosure high costs of going public higher potential for agency problems

Advantages and Disadvantages of Raising Funds Privately Closer monitoring and control Highly illiquid Lower access to funds

The Going Public Process IPO – initial public offering A firms offers a share of its ownership to the public in exchange of new funds. Typically the process is “underwritten” by an investment banker for a fee.

IPO Activity

Issues in IPOs “Hot cycles”: in some years there is much higher IPO activity than in others October 23, 2002: 10:46 AM EDT NEW YORK (Reuters) - Wynn Resorts Ltd., casino mogul Steve Wynn's vehicle to build a multi-billion dollar Las Vegas resort, pushed back a $438 million IPO planned for Tuesday as investors balked at a business that won't have revenue for three years. IPO Underpricing Netscape closed at $75 on offering day, up from $28 IPO oversubscription: often there is much higher demand for the offering than the shares offered.

IPO Underpricing

Private Placements Private equity Private debt placements 144A placements

LBO’s Leveraged Buyout (LBO): money is borrowed to repurchase all the shares of the company, and take it private, resulting in a great deal of debt Reverse LBO: a company goes public after it has been taken private